Freelance work has become an attractive and popular money-making opportunity in recent years, offering a number of advantages and benefits. With inexhaustible potential and prospects to offer a variety of services to Bulgarian and foreign companies, freelancing is becoming one of the most preferred digital business models. This type of work provides exceptional flexibility, competitive pay, the accumulation of diverse experience, and more.
But before you can successfully develop as a freelancer, you need to carefully familiarize yourself with the legal aspects surrounding the freelance profession. In this article, we will look at what this activity is, what you need to know about reporting income from a freelance profession and how to choose between registering as a freelancer or starting an Ltd company.
What does Freelance mean?
The word “freelance” in recent years has become extremely trendy. But what does it really mean? What does a freelancer really do?
In short, a freelancer is a person who performs a freelance activity or an individual performing a freelance profession. Through the spread of the global network and the more frequent use of the Internet and various digital solutions, freelancing has grown significantly, and today it includes the provision of various marketing services, programming, even digital sales for companies all over the world. Freelancers can offer services to clients from anywhere in the world as long as they have a good internet connection and the necessary skills. As a result, they receive financial rewards.
Under Bulgarian legislation, a freelancer is equivalent to a self-employed person. This requires compliance with the Personal Income Tax Act, or PIT.
If you are one of those people who carry out their activities at their own expense, you are not registered as an ET and you self-insure – congratulations! You are a freelancer, or in other words, you exercise a free profession.
One of the most common questions is whether people offering freelance services are required to register a company. In short, no, it is not necessary to register a company. The only thing that is mandatory is the registration of a free profession.
Registration at the Registration Agency
In order to register as a self-employed person, it is necessary to register in the BULSTAT register at the Registration Agency in the town where your permanent address is. This is done by completing and submitting a self-employed registration form. For the procedure you will need:
- ID card;
- A document proving your area of expertise – diplomas, certificates, etc.;
- Application form – filled out on the spot;
- Declaration – filled out on the spot.
Once you go through the process and pay the mandatory fee, you will receive an EIC. Within 7 days after the start of your activity, you need to submit a declaration for starting an activity in the NRA. The declaration also states the start date, which is also the date from which the self-insurance starts.
During registration, it is important to decide whether you want to be a freelancer with or without sick leave.
Freelance taxes as a self-employed person
Every registered freelancer should also be familiar with the self-insured person’s tax obligations. With the freelance profession, you do not need to collect documents for expenses.
Instead, they are legally recognized as 25% of the value of all revenue from your freelance services. At the end of the reporting period, the legally recognized expenses are calculated from the total value of the revenues. A 10% tax is paid on them
Freelance as an Ltd owner
On the other hand, people performing freelance services can also take advantage of the option to practice as owners of an Ltd. For this purpose, it is necessary to register a company.
Registering a company is generally considered a more complicated process than registering as a self-insured person. For successful registration, it is necessary to prepare in advance with the mandatory documents for the detailed description of the activity that the company will carry out, to choose a name, as well as to determine the amount of capital. The process always starts with the documentation, goes through the opening of a bank account for the capital, notarizations and payment of a state fee. Finally, you need to register the company in the Trade Register.
Most freelancers who choose to register a company rely on a professional registration partner. This facilitates the process by ensuring that risks are avoided, saves time and always delivers the desired results.
Insurance as an Ltd owner
When it comes to the insurance due as an Ltd owner, it is important to note the differences from having only a freelance registration. As the owner of an Ltd, you owe insurance on at least the minimum insurance income. This income changes through time and in 2022 it is BGN 710. With insurance without the right to sick leave, the insurance payable is 27.8%, and with the right to sick leave – it is 31.3%.
Freelance taxes as an Ltd
Freelancers with a registered Ltd company owe corporate tax on the annual profit in the amount of 10%. In some cases, the tax is due in advance in the current year, but for start-up businesses this is not valid.
Ltd. or Self-Insured Freelancer
The choice of whether to practice as a freelancer as an Ltd or as a self-employed person depends on your preferences as well as the amount of your earnings. The main differences between the two options are:
- Owners of an Ltd can be insured on minimum insurance income, while self-insured persons must be insured on the income received or on the maximum insurance income.
- Self-insured persons are entitled to legally recognized expenses, unlike legal entities. Here it is important to consider the expected costs.
- The company and the individual who manages the company are considered separate legal entities, which means that the company’s funds cannot be used as personal. This is not the case with self-insured individuals.
We hope this article will be helpful in making important decisions related to your growth as a freelancer. At MKAFinance we offer various services, such as company registration and registration of self-employed individuals, which can be of benefit to you and save you a lot of unnecessary stress, time waste, costs and headaches. Contact us now and let’s discuss how we can be of help.